Pricing optimization is an operations research technique that focuses on setting prices for goods or services in a manner that optimizes an objective such as maximizing profit through, for example, contracting the supply or manipulating the price. Companies can employ pricing optimization to match prices and offers to subsets of customers having identifiable differences, such as differences in needs, amounts needed, or willingness to pay. This allows the seller to sell its goods or services with a total market return that is higher than if prices were not adaptively set to exploit such differences or heterogeneity of demand.
Often times the objective of pricing optimization is the optimization of a specific business objective, such as maximizing net income or profit. Ideally, this maximization function would be approached asymptotically through modification of a business process employing successive iterations of a stimulus-response or trial and error cycle. For example, a product might be placed in the market with a certain price. In order to discern which price point maximizes revenue, the price may be varied and the results observed. This is the approach taken by many prior art approaches to optimizing certain business objectives.
The problem with this approach, however, is that it allows observation of only very simplistic stimuli. In the price example above, only one price may be attached to a particular product and the response to that particular price observed at any particular moment. Thus, the response to the particular price is a discrete one, either a customer buys a product at a certain price point or they do not. The discrete response nature of these prior art methods allow only a discrete set of success-failure responses to be observed.
In the real world, however, the stimuli that drive certain actions may be fairly complicated. But placing a multi faceted stimulus in the market presents its own set of problems. Namely, when a multi faceted stimulus is utilized is it not necessarily directly observable which aspect of the stimulus is generating the corresponding response. Furthermore, the response may not be a simple acceptance-rejection of the stimulus but rather the acceptance may occur on a continuum, e.g. a quantity purchased or a total amount of revenue committed.